History tells us to buy Ethereum before its next big move

Ethereum (ETH 0.78%) has recently joined an elite club. It is now one of only two cryptocurrencies to have an approved spot exchange-traded fund (ETF) alongside the world’s most valuable cryptocurrency, Bitcoin (BTC 1.46%).

On July 23, the Securities and Exchange Commission (SEC) approved nine Ethereum spot ETFs, marking a major milestone for the cryptocurrency market and potentially opening the door to a lucrative investment opportunity. Here’s why history tells us Ethereum could be worth buying after its historic approval.

What is an Ethereum Spot ETF and why is it important?

Before we get into the details, it’s important to understand what an Ethereum spot ETF is and why it’s important. A spot ETF is an exchange-traded fund that tracks the price of an underlying asset. This could be gold or other precious metals and commodities, but in this case, it’s a cryptocurrency, Ethereum.

The approval of Ethereum spot ETFs is significant because it opens up access to a wider range of investors, including individuals and institutions, who can now purchase Ethereum through the exchange. This move lowers the barrier to entry for traditional investors who may have been hesitant to navigate the complexities of cryptocurrency exchanges and wallets.

Additionally, it offers a regulated and secure investment vehicle, potentially attracting more conservative investors who would prefer exposure to digital assets through familiar financial instruments.

Comparing Ethereum and Bitcoin ETFs

Although it’s not even a week old, Ethereum’s price has followed an eerily similar trajectory to Bitcoin’s after getting its spot ETF approved. In retrospect, the approval of Bitcoin spot ETFs triggered a classic “buy the rumor, sell the news” phenomenon. And the same can probably be said for Ethereum.

In the week following the approval of the Bitcoin ETF, its price dropped by nearly 10%. Similarly, at the time of writing, Ethereum saw an 11% drop in just three days following its approval.

Furthermore, beyond the “buy the rumor, sell the news” phenomenon, there is another main culprit for these declines: the exodus of Grayscale crypto funds to newly approved spot ETFs.

Prior to the approval of spot ETFs, investors seeking exposure to cryptocurrencies through the stock market were limited to futures contracts and products known as trusts, which is what Grayscale (a digital asset manager) offered. Shades of grey‘s Trust in Bitcoin (GBTC 5.18%) And Ethereum Trust (ETHÉ 4.84%) Traditional investment funds offered a way to invest in these cryptocurrencies. However, they often came with higher fees and less accurate tracking of the asset’s price.

Now that spot ETFs are up and running and tracking the price of underlying assets more efficiently and at lower cost, investors have begun to abandon Grayscale’s products in droves, preferring more efficient spot ETFs.

What the numbers say

Following the approval of the Bitcoin spot ETF, approximately $4.3 billion left the Grayscale Bitcoin Trust in two weeks, causing significant selling pressure and a price drop from approximately $46,000 to $39,000. Similarly, the Grayscale Ethereum Trust is currently experiencing a massive selloff, with nearly $1 billion outflowing in just three days. This move is contributing to the recent drop in Ethereum’s price as the market adjusts to the new investment landscape.

While Ethereum’s immediate future may seem shaky given the ongoing departure of the Ethereum Trust from Grayscale, there is a silver lining. Despite the initial turbulence, it is clear that other ETFs are accumulating and absorbing much of the selling activity. If Grayscale’s outflows were eliminated, the remaining Ethereum spot ETFs would have generated over $1 billion in net inflows.

With significant demand, Ethereum could get a boost (like Bitcoin) once Grayscale’s sellers hit their stride. But it’s hard to predict exactly when that will happen. It took about two months for Grayscale’s Bitcoin selloff to stop, but after that, Bitcoin’s price surged more than 90% and eventually hit a new all-time high.

Despite a 20% correction along the way, Bitcoin’s final rally highlights Ethereum’s potential to follow a similar trajectory. This pattern suggests that Ethereum could see substantial price appreciation once the current wave of volatility subsides.

Final considerations

Despite losing 20% ​​in the first two months after its spot ETF was approved, Bitcoin eventually rebounded once the Grayscale exodus subsided. With clear parallels forming between the paths of Bitcoin and Ethereum’s spot ETFs, it might be reasonable to speculate on Ethereum’s future performance.

Once Ethereum gets through this period of volatility, it could potentially reach a staggering $6,500 in the next couple of months. However, keep in mind that there is still downside risk as long as investors continue to pull out of Grayscale’s trust.

While history rarely repeats itself exactly, if it rhymes at least, the recent correction and any future decline in Ethereum’s price presents a compelling buying opportunity. But more importantly, the launch of spot ETFs reinforces Ethereum’s already impressive long-term growth potential as investors gain new ways to gain exposure and begin to better understand Ethereum’s leading role in the digital economy.